2) Southern Machines has a net income this year of $500 on sales of $2,000 and is operating its fixed assets at full capacity. Management expects sales to increase by 25 percent next year and is forecasting a dividend payout ratio of 30 percent. The profit margin is not expected to change. If spontaneous liabilities are $500 this year and no excess funds are expected next year, what are Southern's total assets this year?
3) The 2007 balance sheet for Tree Hauling Company is shown below (in millions of dollars):
Accounts Receivable_3.0____________Notes Payable_________________1.5
CURRENT ASSETS _$11.0____________CURRENT LIABILITIES__________$3.5
Fixed Assets________3.0____________Long-Term Debt _______________3.0
TOTAL ASSETS____$14.0____________TOTAL LIABILITIES & EQUITY__ $14.0
In 2007, sales were $60 million. In 2008, management believes that sales will increase by 20 percent to a total of $72 million. The profit margin is expected to be 5 percent, and the dividend payout ratio is targeted at 40 percent. No excess capacity exists. What is the additional financing requirements (in millions) for 2008 using the formula method?
4) Refer to Problem 3. How much can sales grow above the 2007 level of $60 million without requiring additional funds?
The solution explains how to calculate the total assets & sales growth without additional funds